Recently, I noted a blockbuster front-page article in the Washington Post which delved pretty deeply into the SEC’s investigation of Bernie Madoff and how some earlier warning signs may have possibly been ignored – including the possibility of interference by a SEC official who would soon become related to Madoff. Amazingly, the other mass media outlets don’t seem to have caught up to the WaPo reporter’s research into this story despite its obvious public appeal.

In this podcast, I caught up with the reporter who wrote the story – Zach Goldfarb – to ask a few questions about this story, including:

– What is the essence of your article?
– How long did it take for you to research it?
– When did you find out it would be on the front page?
– What type of reactions have you heard since it ran?

Beware the “Dark Pools”: SEC Chair Speaks Out

During her testimony before the House’s Capital Markets Subcommittee of yesterday regarding oversight of her agency, SEC Chair Schapiro raised concerns over “dark pools,” an area where I predict the *#i% will hit the fan one day. Here is an excerpt from her testimony:

In addition, our staff has begun exploring transparency issues related to markets known as dark pools. Dark pools are defined in various ways, but generally refer to automated trading systems that do not display quotes in the public quote stream.

We have heard concerns that dark pools may lead to a lack of transparency, may result in the development of significant private markets that exclude public investors (through the use of “indications-of-interest” that function similar to public quotes except with implicit pricing), and may potentially impair the public price discovery function if they divert a significant amount of marketable order flow away from the more traditional and transparent markets.

Given the potential risks posed by dark pools, the Commission will take a serious look at what regulatory actions may be warranted to respond to the potential investor protection and market integrity concerns that dark pools may raise.

Great Sleuthing and Drafting: “On Dead Frogs in SEC Filings…”

Congrats to Michelle Leder of footnoted.org for uncovering (in this blog entry) this Form 8-K filed by Expeditors International, in which the company hilariously addresses some legal expenses related to a DOJ investigation first disclosed nearly two years ago. Both Michelle and the drafters of the following disclosure should win some type of award:

When you come from a frame of reference, as we do, where $0 spent on legal expense would be the most preferred alternative, having to predict anything beyond that, by its nature, would become inherently and incredibly biased towards our own wants, desires and expectations. To us, this is somewhat akin to being asked to predict how many minutes after being force fed a dead frog we would throw-up…and the operative word is “force,” as we’d never elect to do either on our own. In both cases (the legal fees or swallowing the dead frog) we’re certain we would eventually throw up.

In neither case do we know exactly how much money or how much time would pass before we did. In both cases, however, our gut check, no pun intended, is not very much and not very long! It should go without saying that given our druthers, we’d rather not spend the legal fees or eat the dead frog in the first place. Sometimes you don’t get the luxury of deciding what you have to eat. When you do, and it’s unpalatable, it should be obvious that you would eat as little as possible. What we are certain of is that if we were talking about being force fed dead frogs and not incurring excessive legal fees, people would be content accepting at face value that it would be as little as possible.

This stuff is right up there with the recent theories thrown out there about finger size and traders’ earning power, as noted by this article.